OECD steps up regulatory pressure on transfer prices

An action plan to close international tax loopholes was unveiled last week by the Organization for Economic Co-operation and Development, with tax specialists saying this will increase the regulatory pressure on matters related to transfer prices.

The plan supporting the base erosion and profit shifting report will be rolled out in the next two years and aims to close the abusive transfer of profits by companies resorting to aggressive tax planning practices.

Adrian Luca, director of Transfer Pricing Services, a transfer pricing consultancy, said the action plan will lead to changes in regulation that “especially” target transactions within multinational groups.

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“We have another clear signal that the member companies of a group need to seriously consider any matter related to the establishment of transfer prices, the documentation of intra-group transactions, especially when the company records losses or profit fluctuations – this will be the main focus of fiscal authorities. The OECD measures will be transposed into national legislation,” said Luca, who worked on the implementation of transfer pricing regulation in Romania.

The action plan aims to prevent the artificial shift of profits, through the transfer of intangibles such as patents or copyrights, risks or capital, away from the countries where the business in generated.

Russian Finance Minister Anton Siluanov said: “As the presidency of the G20, we commend the work of the OECD to ensure that the international tax system promotes growth and competition without distorting the basic tenets of fairness – that it allows multi-national corporations to prosper without loading a higher tax burden on domestic companies and individual tax payers.”

The OECD plan also tackles the deductions of interest related payment, stemming from the intra-group loans, and the set up of a permanent headquarter.

New regulation will try to close tax loopholes generated by the digital economy, whose products and services do not fall under the tax regime of any specific country.

Ovidiu Posirca